It looks to me as if you are using an old template in version 2.5x. There have been many HTML changes in 2.5x so old templates do not work. You will be better off copying one of the shipped templates and modifying it.
I don't see any squishing with the latest version of the default template. Try updating to the latest version and retesting with the default template.
Cheers,
Tony Partner Solutions, code and workarounds presented in these forums are given without any warranty, implied or otherwise.